In part one of this post, we discussed the important distinction between tax avoidance and tax evasion. Tax avoidance, we explained, involves using legal means to get around or minimize tax liability. Tax evasion, by contrast, involves actions such as not reporting income that, when done willfully, can lead to criminal charges.
As we noted, there are also gray areas in the law. Offshore tax compliance, in particular, has many nuances. So do many businesses transactions. In this part of the post, we will outline the role a tax lawyer can play in helping you steer clear of tax evasion charges or -- if it comes to that -- defending against them.
In terms of steering clear of charges in the first place, an experienced tax attorney can not only provide informed counsel on the constantly changing and often ambiguous tax code. An attorney can also help you make proper use of the services of other professionals, such as accountants or investment advisers.
When foreign accounts are involved, a skilled attorney can help you in multiple ways. This begins with counsel on how to comply with the various filing requirements, beginning with FinCEN form 114, more commonly known as the FBAR (Report of Foreign Bank and Financial Accounts).
If you did not meet those filing requirements, an attorney can advise you on your options for moving forward. You may want to consider participating in an Offshore Voluntary Disclosure Program (OVDP) offered by the IRS. But in some cases, it may make more sense to engage in "quiet disclosure," reporting previously undisclosed accounts without entering the OVDP. A tax lawyer can help you choose the path that makes sense for your particular circumstances.
But offshore accounts are hardly the only arena in which tax evasion charges can occur. The government may accuse you of underreporting many different types of income.
Once the government has started an investigation, your attorney's priorities will shift to designing a sound defense strategy. Through proactive steps, it may be possible to prevent criminal charges from being filed at all -- perhaps by showing that underreporting of income was not done willfully.